Am I Entitled to Transition Compensation?
There is no doubt that the impact of the current COVID-19 pandemic has affected virtually every part of the world. Between December and May, the novel coronavirus has caused businesses, hotels, restaurants, manufacturing plants, schools and more to shut their doors. Some common practices that many employers are adopting in a bid to stay afloat include reduction-in-force (RIF’s), lay-offs and furloughs.
In Europe alone, more than 18 million workers have lost their jobs since the COVID-19 crisis struck. Even worse, that number is likely to swell as the disease continues to cut an ever-widening swath through the European job markets. The unfortunate truth is that most of these coronavirus job losses will persist long after the pandemic is gone.
For people who have lost their positions due to coronavirus or any other reason that is not their fault, there is a silver lining. Most workers who lose their jobs, particularly in the European Union and the United Kingdom, may be entitled to transition compensation. However, one must meet specific legal requirements to qualify for this payment. This guide will explain everything you need to know about transition compensation and whether you qualify.
What is Transition Compensation?
Transition compensation or transitional pay is a statutory severance payment made by employers to employees upon termination of employment. The allowance usually includes salaries, pay-in-lieu of notice and wages. Wages here refer to accruals for holidays and any other paid time off as well as overtime earned before termination.
When Do I Get Transition Compensation?
While a transitional arrangement applies to workers who lost their jobs, not all employees who fall into this category are entitled to transition compensation. The allowance is payable only if:
- The ex-employer no longer has a job for the employee due to circumstances such as the COVID-19 crisis
- Termination of the employment contract was due to reasons that are not the worker’s fault
- The ex-employer fails to renew or extend the employment contract
It is important to note that an (ex-) employee is not entitled to a transitional allowance if:
- The employer seriously accuses the employee of terminating the employment contract themselves
- The employee lost their job due to bankruptcy
- The employee applies for transition payment after three months
Every employee who qualifies for transition pay has a collection obligation. What this means is that they should take the initiative to claim their transition allowance from their ex-employer. The reason for this is simple. Employers do not have a legal obligation to make this payment voluntarily. And in most cases, they do not. Also, an employee should claim their compensation almost immediately after dismissal. This is mainly because the right to transition payment often lapses 90 days after the last working day.
Calculation of Transition Compensation
Several factors determine the amount of compensation that an employer pays upon dismissing an employee in Western Europe. These often include:
- The level of an employee’s (average) monthly salary,
- The number of years of employment, and
- The level of other additional factors, such as holiday pay.
In most European countries, the transition payment amounts to 33.3% of the employee’s monthly salary for every year of service for the first 10 years. Employees who have been employed for more than 10 years and those older than 50 years are typically entitled to a higher transition payment. While that remains the case in most countries in Europe, there has been some recent changes in certain countries, like the Netherlands.
Most Recent Changes to Transition Compensation
In most European countries, laws governing transition compensation have been active for quite some time now. In the Netherlands, a new law came into effect with the Balanced Labour Market Act (Wet Arbeidsmarkt in Balans, or WAB) on January 1, 2020. Before this new law, employees in the Netherlands were entitled to transition compensation only if their dismissal came after their employment contract had lasted for at least two years. Workers over the age of 50, as well as those whose contracts had lasted for more than ten years, would receive higher premiums.
What Has Changed?
Since the new Balanced Labour Market Act came into effect on January 1, 2020, there have been some significant changes in transition compensation. Employees in the Netherlands are now entitled to transition allowance right from the first day of their employment. Furthermore, the rules that awarded higher accruals for employment contracts longer than ten years and employees over the age of 50 are no longer in place. Employees will now receive one-third of their monthly fixed salary per pro rata year of service.
As the coronavirus pandemic continues to affect businesses throughout Western Europe, many employers experiencing income loss may not be in a position to make transition payments to employees. The law seems to have considered this. It permits organizations to arrange for staggered payment for a period of not more than six months, if they are unable to pay the transition compensation at once. In case of such an arrangement, the employer must pay the legal interest over that part of the payment that has not been paid starting one month after the termination of the contract.
What Should I Do If I Lose My Job?
With the current pandemic taking its toll on the global economy, the job situation could remain grim across the European Union and the UK for quite some time. More people may lose their jobs as businesses in hospitality, tours and travel, imports and exports, and other industries continue to feel the strain from COVID-19. For anyone who has had or will have their employment contract terminated, it would be wise to seek legal assistance to ensure that you receive what you are entitled to in a timely manner. Not only can we assist you in the complex calculation of transition payment, we can deal with your employer for you, so you don’t have to. We will make sure that your employer takes the claim seriously and work diligently to get you the transition payment you deserve.